Up Or Down? Final Product Assembly Operations In Supply Chain Systems In The Additive Manufacturing ERA
A supply chain system includes both upstream and downstream members. In many cases, before the product is sold to the market, there is a final product assembly (FPA) step. Deciding whether and when this step should be conducted by the upstream or the downstream supply chain member is a practical and timely problem, because the final product assembly process can now be supported by additive manufacturing technologies. In this paper, we address this question by building analytical models with the use of game theory. In the basic model, we consider a single supplier single retailer supply chain selling a seasonal product. The FPA step incurs a cost, which takes a different value when it is done by different supply chain agents. In our analysis, we find that under the wholesale pricing contract with the fixed wholesale price, letting the retailer does the FPA step will lead to a larger double marginalization effect. For the whole supply chain system’s perspective, the optimal selection of member for FPA step is solely determined by the respective FPA cost. As such, to achieve the optimal supply chain, we need to identify the best member to take up the FPA process as well as coordinate the respective supply chain. To do so, we propose the use of a buyback contract and analytically derive the contract bounds. To show robustness of our results, we extend the analysis to cover the cases when: (i) there are two products in the market, and (i) the retailer can offer make-to-order services for final product assembly. We find that the main findings under our basic model continue to hold and new insights are derived.
Index Terms - Supply Chain Management, Manufacturing, Operations Research.